17 April 2014

Are your pension "Lifestyle" funds bad news?

Many pension plans are in Lifestyle funds (and here we're mainly talking about personal pension plans including those arranged by your employer, but not defined benefit / final salary pensions).

In many cases they are the default fund if you don't choose anything, which is not a bad approach if you don't know any better (although I'm not a fan myself). The way they work is that your money is moved into supposedly less risky assets (like gilts) as you approach your chosen retirement date. The idea is to reduce the risk of last minute drops in value, just before you use the whole pot of pension money to buy an annuity. 

BUT

With the new-found freedom not to buy an annuity expected from April 2015, why would you do that? If your pension will remain invested after retirement so that you can take a bit a time, it would be much better to remain invested in riskier / growing assets and continue to benefit from longer term growth.

I'm sure there will be many consequences (foreseen and un-foreseen) of the latest pension freedoms and this is one of many.

No comments:

Post a Comment

Blog Archive